In Effort to Lure Buyers in Slowing Market, Some Brokers Giving Commissions to Buyers

As the nation’s housing market continues to cool, the Wall Street Journal reports that a growing number of brokers are doing the unthinkable:

Giving most of their commissions back to buyers.

This once-unusual trend is catching on in some of the most expensive real estate markets in the U.S. In February, Seattle-based Redfin debuted its program that offers to refund two-thirds of the commission it receives for representing a home buyer. Meanwhile, BuySide Realty Inc., a Chicago-based company, is launching of a service offering home buyers rebates of 75 percent of the commissions it earns. Because brokers add to selling costs, it won’t be surprising if more and more people opt for this route.

How expensive is it usually? People selling homes typically pay commissions of 5-6 percent of the price, which is split between brokers representing the buyer and seller.

To use a common example, if a buyer is purchasing a $300,000 home and a 3 percent cut is taken out of that, BuySide would earn $9,000, then turn right back around and pay 75 percent of that, or $6,750, as a rebate to the buyer. Not a bad deal for someone already stretched thin to by a house. These new rebaters join a long list of entrepreneurs trying to reinvent the residential real-estate business — and the $60 billion a year in commissions it generates.

A small number of brokers already offer rebates on their real estate commissions as a way to attract customers, but the idea has never gone mainstream until the recent housing market uncertainty. New firms are trying to make the idea more compelling by dangling bigger rebates. Consumers are often frustrated by commissions, particularly because the surge in home prices over the past five years has pumped up the amount pocketed by agents. Smaller firms are now offering to help owners sell homes for a FLAT FEE — usually a few hundred dollars — rather than taking a percentage of the price.

But the traditional model has proved resilient, partly because buyers pay nothing directly to agents (the seller pays agents on both sides of the deal), while sellers assume that it’s worth the money, as a good real estate agent will get them a great sale on their home. Yet discounters keep chipping away at the traditional model, in hopes that the recent rise in Florida home loan rates and the overall market slowdown will help.

• As buyers face pricier Florida home loans, they may be more eager to seek a rebate to help them afford the house they want.
• With lower median prices, many sellers may be less willing to pay a standard real estate commission.

On the flip side, traditional brokers contend that in a weak market, the consumer needs their services more and will be more than willing to pay for it. Indeed, agents from BuySide and Redfin, among others, don’t drive their clients around to see houses — they leave the legwork to their Internet-savvy customers. They do help make offers, handle negotiations and oversee other technicalities of getting a deal done, however.

It’s not all small-timers doing this, either. Some sizable firms, most notably ZipRealty, Inc., and LendingTree, already promote rebates. But the idea of getting a rebate on a home remains little known throughout a whole lot of the United States. In fact, fifteen states (Missouri, New York and Oregon, among others), actually ban or heavily restrict rebates on commissions. One of the biggest problems for rebaters is persuading consumers that their offers are legitimate.

“People often think it’s too good to be true,” said Daniel Ruben Odio-Paez, a real estate agent who works in the Washington, D.C., area and operates a website, RebateReps.com, that connects buyers with agents willing to provide rebates.

It has certainly worked out for some home seekers. Ren and Jason Fuller of Bellevue, Wash., just received a nice check for about $12,000 upon buying a three-bedroom house through Redfin. They found the house on their own, but Redfin helped make the offer and coordinated the closing. The result? Happy buyers and mortgage services alike.

“I liked being in control,” said Ms. Fuller, who agrees that the a bare-bones service like Redfin might not have worked as well for someone moving from far away who needed help choosing a neighborhood, or for someone unfamiliar with preparing for the mortgage process.

The premise of BuySide and other such services offering rebates is that in today’s tech-driven market, many consumers find the homes they want to buy online. With that in mind, business owners feel the buyer should share in the commission paid to the agent that helps complete the transaction. If you’re looking for South Florida real estate, you might be able to find a solid deal from a company like this if you feel you can handle a lot of the work. Look around and see what’s available to you in this buyer’s market!